Trade surplus narrows as commodity prices drop

Chris Zappone

The monthly trade surplus narrowed more than expected in October to its smallest since March as demand for commodities from China faltered.

The trade surplus narrowed to $1.59 billion from $2.56 billion in September, according to the Australian Bureau of Statistics. Economists polled by Bloomberg expected the trade surplus to fall to $2 billion.

"It could be the first sign of a weakness for demand for commodities from China but a lot will depend on how Europe evolves," said St George Bank chief economist Besa Deda. "We think the weaker commodities prices and the relative strength of the Aussie dollar, combined with strong demand for capital goods imports probably means we've seen the peak of the surplus."

The ABS said iron ore fines exports to China, on a recorded trade basis, fell $110 million or 3 per cent in October. Volumes for lump iron ores were up 6 per cent but prices fell 9 per cent.

Ms Deda said St George is still forecasting healthy trade surpluses to come, especially with Queensland's coal industry's production improving after the floods at the beginning of the year however the peak of the surplus has probably passed.

In seasonally adjusted terms, non-rural goods exports edged up $14 million to $19 billion in October, helped by mineral fuels which rose $144 million, or 7 per cent in the month.